hard · FRM Part 1 Quantitative Analysis
An AR(1) process is given by x_t = 0.4 + 0.8x_t-1 + ε_t.
What is the long-run mean of the process, and what does the coefficient 0.8 tell us about its mean reversion?
- 2.0; The process is non-stationary and does not revert.
- 0.4; The process reverts to the mean very quickly.
- 2.0; The process reverts to the mean relatively slowly.
- 0.5; The process reverts to the mean at a moderate speed.
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